The FTSE 100 has hit a record high. Is now the time to start investing?
As we navigate through the new year, the UK’s leading share index, the FTSE 100, has soared above 10,000 points for the first time since its inception in 1984. This milestone has ignited excitement among investors and caught the attention of the Chancellor, who is eager to encourage more people to transition from cash savings to investments.
The index reflects the performance of the 100 largest companies listed on the London Stock Exchange and surged over 20% in 2025. However, amidst rising everyday costs and mounting concerns over the valuation of some stocks, the question remains: is this the right moment for first-time investors to dive in?
Understanding Investing vs. Saving
Investors have multiple avenues for deploying their money. With the rise of various apps and platforms, investing has become more accessible. However, it is crucial to recognize that the value of investments can fluctuate dramatically:
– Volatility: If you invest £100 today, there’s no assurance that it will retain that value in a month, a year, or even a decade.
– Long-term Growth: Historically, long-term investments have proven lucrative, as evidenced by the upward trend of the FTSE 100.
– Dividends: Shareholders may receive dividends, offering a potential income stream or a chance to reinvest.
In contrast, cash savings provide stability:
– Predictable Returns: While savings rates vary among providers, the returns are predictable.
– Accessibility: Savings are typically easy to access quickly, making them ideal for emergency funds, holidays, weddings, or car purchases.
Anna Bowes, a savings expert at The Private Office, emphasizes the importance of having savings: “It gives you access when you need it, preventing you from cashing out your investments at the wrong time.” Financial experts, like Jema Arnold from ShareSoc, agree that a cash buffer is essential before entering the investing arena.
According to the Financial Conduct Authority (FCA), one in ten individuals lack cash savings, while 21% have less than £1,000 for emergencies.
The Balance of Risk and Reward
Risk assessment is a daily aspect of our decision-making. Those who lean toward conservatism often favor savings over investments, but investing can offer higher returns if one has capital they are willing to put at risk. The FCA indicates that seven million UK adults with £10,000 or more in cash could reap better returns by investing.
Chancellor Rachel Reeves advocates for greater consumer risk-taking, asserting that long-term investing benefits both individuals and the UK economy. She plans to modify tax-free ISA rules to encourage investment, accompanied by a major advertising campaign reminiscent of the successful “Tell Sid” initiative from the 1980s.
Should You Invest Now?
Current market commentary suggests caution. Many analysts predict a potential downturn in tech stocks, particularly those focused on AI. The Bank of England has flagged a possible sharp correction in these sectors, reflecting concern from prominent figures like JP Morgan’s Jamie Dimon and Google’s Sundar Pichai.
While uncertainty looms, many individuals are seeking guidance in these volatile times. The FCA is rolling out new measures to enable banks to offer general financial support. As traditional financial advice can be costly and inaccessible, many are turning to influencers or AI for insights. However, this path can lead to misinformation and potential scams, with nearly one in five people relying on family, friends, or social media for financial advice, as reported by the FCA.
Starting April, banks and financial firms will be empowered to provide targeted recommendations based on collective financial behavior. This change aims to offer a safety net for potential investors, although tailored advice will still require a qualified financial advisor.
Conclusion
The FTSE 100’s unprecedented height raises critical questions for those considering investment. While strong growth trends are promising, it’s essential to weigh the risks against the rewards, especially amid concerns about stock valuations and market stability. A balanced approach, incorporating both savings and investments, may be the best strategy for managing your financial future. As always, ensure you are well-informed and comfortable with your choices, and consider seeking advice if needed.